In a simple moving average, all price data has an equal weight in the calculation of the average with the oldest value removed as each new value is added. In the Exponential(Exponentially Weighted) Moving Average, the most recent market action is assigned greater importance as the average is calculated. The oldest pricing data is however never removed.

A buy signal occurs when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average. You can use longer term averages when trading only two exponential moving averages in a crossover system.

Note that a 5-day exponential moving average normally will include more than 5 days worth of data and could include data from the entire life of a security. In fact, these moving averages might be better identified by their actual "smoothing constants," since the number of days of data in the calculation is the same for a so-called 5-day average as for a 10-day average. Exponential calculations can arrive at different moving average values depending on your starting point.
 

Calculation:

                Constant = 2/(1+Period)

                PrevEMA = The previous value of the indicator

 

Inputs: Please refer to Moving Averages

 

Indicator Type: Trend